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Millennials are flexing their homebuying muscles

Millennials have long been called the next wave of
homebuyers. Recent data indicates their time has come.

Millennials, or people between the ages of 19 and
37, were the most active generation of homebuyers in 2017, according to the
National Association of Realtors (NAR).

Based on a recent annual survey of homebuyers, NAR estimated
that 36 percent of all home sales involved millennials last year, up
from 34 percent in the previous survey year, which reflected activity for parts of 2015 and 2016. In the most recent survey, NAR mailed a series of questions to homebuyers who purchased homes between July 2016 and June 2017.

Millennials have held the top home-purchasers spot in the NAR survey among generational groups
for five consecutive years. They also now represent more than two-thirds of all
first-time homebuyers, NAR says.

Other data seems to point to their growing dominance in the
housing market.

According to the U.S. Census Bureau, the homeownership rate
for buyers under the age of 35 gained 1.7 percentage points in 2017, and ended
the year at 36 percent. Homeownership rates for other generation groups
remained largely flat through the same period, although there was a modest
uptick in rate for people over the age of 65 last year, the Census Bureau
reported.

“It is sheer numbers,” said Jessica Lautz, NAR’s managing
director of survey research and communication, during an interview.
“Millennials are the largest generation. Their age group tops out at 37 right
now. As they age, they are increasingly becoming established in their careers
and starting their family, and they do want to purchase a home of their own.”

Although more millennials are buying homes, the numbers
should be higher, NAR said. The homeownership rate for buyers under the age of
35 is 7 percentage points lower than its 2004 peak level of 43 percent.

“We would like it to be higher, but it hasn’t bounced back,”
Lautz said. “Some of the reasons are because of housing affordability, low
inventory and student loan debt.”

Lautz said these obstacles tend to depend on where the
millennial is purchasing a home.

“Definitely in coastal areas, affordability and low
inventory are going to be bigger hurdles to overcome,” she said. “In other
areas, it could be wages and student loan debt playing a bigger role
there.”

Millennials move away from FHA

Millennials are now also important to the mortgage market. There
has been recent, notable change in millennial borrowing patterns, according to the
technology solutions provider Ellie Mae, which tracks millennial trends.
Lenders have been steering a greater percentage of millennial borrowers into
conventional loans, and away from the Federal Housing Administration (FHA)
program.

Among loans closed in January, 67 percent of the mortgages taken out by
millennials were conventional loans and 28 percent were FHA-backed loans, Ellie reported, based on loans that flowed through its origination platform. In January 2017,
the FHA share was at 36 percent and the conventional was around 61 percent,
said Joe Tyrrell, Ellie’s executive vice president of corporate strategy.

“What you are seeing on the conventional side is newer loan
programs with higher loan-to-value or lower requirements for downpayment
starting to gain more traction among the millennial community,” Tyrrell said.

Fannie Mae and Freddie Mac have rolled out programs that
enable borrowers to put just 3 percent down on a loan. Downpayment assistance
programs also have proliferated around the country. In addition, Fannie and Freddie have eased their requirements to allow borrowers to carry more overall debt in
relation to their income. Among these changes, Tyrrell said the looser debt-to-income ratio requirements have likely had biggest impact in attracting more millennial homebuyers.

Tyrrell said the big wave of millennial buyers has just
started. Ellie Mae estimates that In 2021 nearly 25 million people will be
between the ages of 29 to 32, the age when most people start thinking about
buying a home.

“There is a bit of a bubble coming our way from the
millennials,” Tyrrell said.